Eicher Motors Q2 Review: Analysts See Healthy Order Book, Chip Supply To Improve

Shares of Eicher Motors Ltd. gained as analysts expect the Royal Enfield maker to benefit from a healthy order book and better exports on improving supply-chain situation.

The two-wheeler maker’s profit beat estimates in the three months ended September. Its sales improved 1.1% sequentially to 1.23 lakh units. Sales at its commercial vehicle unit, Volvo Eicher Commercial Vehicles, too, rose 90% to 15,134 units.

Dolat Capital upgraded its rating on Eicher Motors citing a healthy pipeline and network expansion, while Nirmal Bang cautioned that strong pricing actions to support profitability are likely to test and could lead to volume underperformance.

Shares of Eicher Motors rose over 4.3% in early trade on Monday. Of the 46 analysts tracking the company, 21 have a 'buy' rating, 12 suggest a 'hold' and 13 recommend a 'sell', according to Bloomberg data. The 12-month consensus price targets implies an upside of 2.3%.

The stock's trading volume was 9.7 times the 30-day average volume for this time of the day.

Here’s what brokerages have to say about Eicher Motors’ second-quarter results...

• Maintains ‘buy’ with a price target of Rs 3,250 apiece, implying a potential upside of 29%.

• Supply-chain situation improving; focus on exports yielding results.

• Realisations grew 15% QoQ in Q2 FY22, driven by pricing actions and favourable mix (higher exports and increased contribution from high value models).

• Availability of semiconductors has improved since the end of September 2021 and is expected to improve in H2 FY22.

• Recently launched Classic 350 and upcoming products would help expand addressable markets and drive the next phase of growth for Royal Enfield.

• Maintains ‘sell’ with a price target of Rs 2,532, apiece, implying a potential downside of 5%.

• Q2 FY22 revenue came in 13% ahead of broader expectations, led by better-than-expected average selling price growth of 15% QoQ.

• Gross margin surprised positively with a 40-basis-point improvement on a QoQ basis versus expectations of a 120bps decline, led by price hikes and better mix.

• Healthy inquiry levels, strong order book and sustained export demand.

• Company continued its aggressive network expansion plans in the domestic market (added 535 stores in FY21; 49 stores in H1 FY22).

• Remains constructive on the near-term demand outlook.

• Upgrades to ‘buy’ from ‘sell’ with a price target of Rs 3,154, apiece, implying a potential upside of 25%.

• Demand continues to be strong and outstripping supply with a strong order book.

• Best placed to benefit from urban recovery and increasing premiumisation trend.

• Gross margin continues to be strong as mix is improving well.

• Exports showed remarkable growth (+222% YoY) in H1 FY22 as network expansion continues (150 exclusive stores and 650 multi-brand outlets) across geography.

• VE Commercial Vehicles Ltd. continued to deliver sustained growth momentum over three-four years backed by a robust recovery in Heavy duty trucks, light medium duty trucks and bus segments.

• Despite short-term hiccups, retains positive view on Eicher Motors due to its leadership in the two-wheeler premium segment, strong product pipeline and network expansion.

• Maintains ‘buy’ with a price target of Rs 3,100, apiece, implying a potential upside of 22.9%.

• Volumes to improve ahead on better chip supplies, large order backlog.

• Channel checks indicate a robust order book for new generation Classic 350cc, with waiting periods of three-four months.

• Chip supplies improving since September 2021-end and are expected to be better in H2 FY22.